Gold Got You Down? Bitcoin Lets You Pick a Different Poison

By Brendan Conway

Gold is taking another beating today, and things are even rougher for related assets, like gold-mining stocks. Investors who bought a metal fund aiming for a hedge against reckless central banks are disappointed lately.

SPDR Gold Trust (GLD) is down another 1.5% on Wednesday, while Market Vectors Gold Miners (GDX) and Market Vectors Junior Gold Miners (GDXJ) — each down 26% on the year — are falling 4.6% and 7.2% apiece.

The question inevitably floating around the blogosphere: Is it time to try Bitcoin?

The same distrust of official currencies is part of what’s driving the remarkable gains in this decentralized, computerized alternative currency.Bitcoin has soared 1,060% versus the U.S. dollar since the start of 2013, and 409% since the start of March, according to Macro Risk Advisors. There’s even a theory floating around that Bitcoin has taken a bite out of gold.

Regulation is certainly one of the biggest risks to bitcoin, particularly for US based investors. The decentralized nature of the system makes it tough for the government to “turn it off”. (Think about how impossible it was to control p2p music piracy). But it can probably be regulated back into the shadows, which could cause the price to plummet. More regulation is likely coming[.]

The lure for gold investors is obvious. But the risk of government foiling your plans may be much, much greater in Bitcoin than it ever was in gold. MRA, for the firm’s part, is skeptical: “Bitcoin could potentially be world changing. Or it could be the new tulip mania. As with most young, emerging technologies, the odds strongly favor the latter outcome.”

For the short term, though, the firm is making an interesting prediction. The market for Bitcoin — currently around $1 billion — could grow as large as the $9.6 billion iShares Silver Trust (SLV), the firm writes:

The current bitcoin market cap is a bit above $1B. It doesn’t seem inconceivable that it could garner a market cap similar to SLV Equity. SLV is a product that’s thought to be predominantly retail, has no real industrial use for its holders (no one is exchanging SLV for physical), where investment has been in large part motivated by fiat currency fears. SLV’s market cap is currently $9.4B, but it has gotten as high as $17.2B as SLV made a run at $50.

About Focus on Funds

As exchange-traded funds and other investing vehicles have ballooned in number, the task of figuring out what works well and what doesn’t has only gotten harder. Barrons.com’s Focus on Funds looks under the hood of ETFs, mutual funds and hedge funds for overlooked values, actionable ideas and the latest pitfalls for fund investors.

Chris Dieterich has covered the U.S. stock market for The Wall Street Journal and Dow Jones Newswires. He is a graduate of Regis University and the Missouri School of Journalism.